* Iran also to be focus of Obama-Netanyahu talks (Adds reaction to Obama interview)

By Jeffrey Heller and Matt Spetalnick

WASHINGTON, March 3 (Reuters) - Even as he grapples with the Ukraine crisis, President Barack Obama will take time on Monday for potentially testy talks with Israeli Prime Minister Benjamin Netanyahu, seeking to nudge him forward in Middle East peace efforts and ease his suspicions about diplomacy with Iran.

With time running out for a framework Israeli-Palestinian deal to salvage a troubled U.S.-brokered peace process, Obama and Netanyahu sparred in public comments in the run-up to a meeting that comes at a critical juncture for the president's second-term foreign policy agenda.

Netanyahu arrived in Washington to a veiled warning from Obama that it would be harder to protect Israel against efforts to isolate it internationally if peace efforts failed.

Signalling that Obama's overture could fall on deaf ears, Netanyahu, in a statement issued by his office on Monday, put the onus on Palestinians to advance prospects for peace and vowed to hold the line during his visit to Washington.

"We need to stand firm on our crucial interests. I've proven that I'm doing that, against all pressure and all uncertainty, and I'll continue to do that here as well," the right-wing Israeli leader said.

He is due to meet Obama at 1:45 p.m. EST (1845 GMT).

Differences between Obama and Netanyahu are expected to be even more pronounced in the Oval Office meeting over U.S. strategy in nuclear talks with Iran. Obama is seeking room for diplomacy, while Netanyahu says sanctions on Tehran are being eased prematurely.

At the same time, Secretary of State John Kerry has been trying to persuade Netanyahu and Palestinian President Mahmoud Abbas to agree to a framework deal that would enable troubled land-for-peace negotiations to continue beyond an April target date for a final accord.

Abbas is due at the White House on March 17.

"When I have a conversation with Bibi, that's the essence of my conversation: If not now, when? And if not you, Mr. Prime Minister, then who? How does this get resolved?" Obama, using Netanyahu's nickname and borrowing from the Jewish rabbinical sage Hillel, said in an interview with Bloomberg View.

Obama's warning of a potential "international fallout" for Israel if peace efforts break down and the building of Jewish settlements continues raised hackles in Israel, where he was accused of trying to squeeze concessions. Israelis are increasingly concerned about an anti-Israel boycott movement.

Possibly further complicating the talks, an Israeli government report on Monday showed that Israeli construction starts of settler homes had more than doubled last year to 2,534, from 1,133 in 2012.

Palestinians seek to establish a state in the West Bank and the Gaza Strip, with East Jerusalem as its capital. Israel captured those areas in the 1967 Middle East war and in 2005, pulled out of the Gaza Strip, now run by Hamas Islamists opposed to Abbas's peace efforts.

RECOGNITION

Israeli officials say the ball is in Abbas's court, noting his refusal so far to agree to a key Netanyahu demand: Palestinian recognition of Israel as the nation-state of the Jewish people.

Netanyahu is likely to repeat that condition in a policy speech on Tuesday to the pro-Israel lobbying group AIPAC, a traditional podium for some of his most strident speeches.

Palestinians, who point to Israeli settlement-building in occupied West Bank territory as an obstacle to peace, say it is enough that they have already recognized Israel's existence through earlier interim peace deals.

"We are working very close, very intensely with Kerry to try to make this process work," a senior Israeli official said.

The official said Israel was ready to show flexibility, noting that Netanyahu had already described a future Kerry paper as an American document. That could give Netanyahu - and Abbas - leeway to register reservations that could keep political opponents of a deal at bay.

U.S. officials hope for at least modest progress but do not foresee a breakthrough in the Oval Office meeting.

"If the president is able to, sort of, narrow gaps and get closer to where both parties support the ideas and the framework," an Obama administration official said, "then that would be great."

"It's not like this is going to be another Camp David 2000," the official said. "I wouldn't expect major announcements about the future of the peace negotiations."

While the Palestinian issue and Western powers' nuclear talks with Iran are expected to dominate the Netanyahu-Obama meeting, the Israeli leader's visit is likely to be overshadowed by the crisis in Ukraine.

Obama spent much of the weekend scrambling to ease the situation, including a long phone call with Russian President Vladimir Putin in which the U.S. president warned of economic and political isolation if Moscow did not withdraw its troops from Ukraine's Crimea region.

On Iran, there is little expectation that the leaders will be able to bridge fundamental differences.

Netanyahu, whose country is widely believed to be the Middle East's only nuclear-armed nation, denounced as a "historic mistake" an interim deal that world powers reached with Iran in November, under which it agreed to curb sensitive nuclear activities in return for limited sanctions relief.

He has demanded that any final deal completely dismantle Tehran's uranium enrichment centrifuges, a position that is at odds with Obama's suggestion that Iran, which says its nuclear program is peaceful, could be allowed to enrich on a limited basis for civilian purposes. (Editing by Eric Walsh and Bernadette Baum)